IVA Guide: A Debt Solution
Individual Voluntary Arrangement, commonly known as IVA, is a legal and formal arrangement between a debtor and creditors. It gives
you space and time to pay back your debts in a specified period of time.
With an IVA you get the flexibility to repay your unsecured debts. However, there are risks to consider.
What is an IVA?
It is a legal method you can use to comfortably pay your debt over a certain period of time. It gives you the flexibility and affordability to pay all your debts under one management. It is legal in the manner that it is approved and supported by courts of law.
An IVA is considered as insolvency. However, it is entirely different from bankruptcy.
To make your IVA a legal agreement, it has to be carried out by a qualified individual. This person is referred to as an insolvency practitioner. It could be an accountant or a lawyer. For the services, you will potentially need to pay a fee.
Once the agreement is done, it is your insolvency practitioner who will deal with your creditors. You will no longer be receiving calls from
your creditors. It is an excellent way to take care of your debts and have the peace of mind you deserve.
Can anyone apply for an IVA?
This repayment option is open for anyone with a burden of unsecured debts, in excess of £6,000 and with 2 or more creditors. However, it is highly recommended for those with assets that would be a target in the event of a bankruptcy. An IVA acts as a shield for vulnerable assets when debts tend to be more than you can comfortably pay back.
It is also a sound option for those looking to secure their incomes. It serves as an option to bankruptcy by reaching a
workable agreement without your creditors placing professional sanctions on your career.
To start the application, you should have proof of income. You could be an employee, self-employed, a retiree living off a pension, a company director or a partner in a business; as long as you have can prove a source of income, you can apply for an IVA.
Important things you should know before applying for an IVA
For a landlord or homeowner, your property will be attached as part of the agreement. This is called an equity clause and you have to comply with it before your application goes through.
Using your name for the agreement means you will be listed in the register for public insolvency. What this means is that your name
and insolvency status can be viewed by any member of the public. Nevertheless, the agreement is categorised as a private matter between you and your creditors. Your employer does not get this information, and your insolvency will not be a press advertisement as typical with a bankruptcy.
By entering into an IVA agreement, your credit score takes some considerable heat for the next 6 years right after the agreement is confirmed.
For the entire term of your agreement, you are voluntarily asked to refrain from taking out any more credit.
How does an IVA work?
An IVA is structured to enable you to pay more to your creditors than it would be possible with bankruptcy. Since this is a mutual
agreement with your creditors, you will have more control over your finances unlike in a bankruptcy.
You get a leeway to propose how your assets’ equity will be introduced into the debt settlement arrangement. You are not coerced to
sell your property as it happens with bankruptcy. In a nutshell, you are in a position to bargain over your debt repayment, and that is one reason that makes IVA a viable option for those deeply stuck in debts.
For the agreement to be carried out as per the law, you should hire a certified insolvency practitioner (IP). As said earlier, it
could be an accountant or a lawyer with immense experience and training in insolvency law. The IP is charged with the responsibility of conducting the IVA according to the law and making sure each party upholds their end of the bargain.
For the IVA to be legally binding it has to be supported by at least 75% of debt value for those who vote for it. Once you get that vote from the majority, you can relax because you are protected. No creditor, even those who voted against your IVA can take any further legal action for the unpaid debts. Your debts are cushioned both legally and formally for the entire IVA period.
Furthermore, your creditors are barred from charging any interest on the outstanding debt balances. No one has the authority to add
any kinds of charges and costs to your debt. Your IVA is in full force and the terms and conditions have to be followed to the letter.
Normally, an IVA lifetime lasts for 5 years. If you have an equity clause as part of your deal, you can extend the IVAs lifetime by
12 months. In other cases, it is possible to have a one-time payment IVA. In correct terms, it is referred to as lump sum IVA or full-and-final settlement IVA.
Once the lifetime of your IVA expires, all your outstanding debts are written off. It does not matter that you have paid only a fraction of your original debt; the end of an IVA means you are free of any unsecured debts.
Is an IVA the right solution to your debt burden?
An IVA is one of the many options to get you out of the deep pit of debts. It depends on the kind of situation you find yourself. What
is true about an IVA is that it offers a flexible method to repay your debts and still have some control over your financial affairs. However, it is expensive and comes with a number of risks. Some of these risks include:
- Your pension and savings will be used as part of the repayment agreement
- For homeowners, you will have to seek a remortgage
- Its success is pinned on the majority vote of your creditors
- It can be an embarrassment if your financial position changes for the worse after the agreement
Just like with any other debt settlement solution, you should not take an IVA at is face value. Take time to understand what you
are walking into. If you feel like this is the way you want to follow, go for it.